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Don't get boxed in by limited square footage

The inherent problem with a successful small store is that you're bursting at the seams. If only you had more space, business would be better than great.

Of course, there are two ways of looking at that problem. The glass half-full perspective: If you truly need more space, you're probably doing something right.

And half-empty: Expanding or opening new stores requires capital, hard work and, to find the right location and rent, good timing. Perhaps you've put growth on hold until the economic forecast brightens, or you're locked into a long lease.

In the meantime, you can increase profitability without adding square footage. You just need to get creative about merchandising, manage your inventory well and be willing to make positive changes daily, experts say. If you think you're not creative enough, hire someone who is. "Look in somebody else's store. Take those ideas and turn them into yours," says Cheryl Hughes, owner of The Whole Wheatery in Lancaster, Calif.

Merchandising: vertical and varied If your store's space is totally cramped, "You've got to stack ‘em high," says Hughes, referring to shelves that add space above existing ones. That said, she emphasizes that vertical shelving is a good move only for stores where profitability is strong, but for the time being, can't move or expand. At these stores, volume has far outpaced the physical space needed to keep product in stock for customers.

Deep Roots Market, an 1,800-square-foot co-op in Greensboro, N.C., does $1,300 in sales per square foot, more than $2.3 million a year. The back room is so small, says general manager Joel Landau, the offices are housed inside a rented trailer. Cold storage occupies a second trailer.

For Deep Roots, the last place to go was up. The staff added high shelves above refrigerated cases and in the back room. But going vertical has its drawbacks, Landau says. "It's inefficient because you have to go up and down ladders to get to things, but otherwise we don't have room to accommodate the volume we're doing."

Make sure to consider your store's cash count before making the decision to go vertical. If your profitability isn't where it needs to be, you need to cut back on inventory instead, says Rick Moller, natural and organic category director for St. Augustine, Fla.-based Tree of Life distributors. "The reality is, if it's in the back, you're not selling it."

Streamlining inventory Lightening inventory is about freeing up cash and space for better-selling and higher-margin items. There are a number of ways to go lean, Moller says. A point-of-sale system— a technology that nearly 50 percent of naturals retailers have embraced, according to this year's Market Overview— can help you collect data to make these inventory decisions easier.

Buy in smaller quantities— in threes, for instance, instead of 12 at a time— Moller suggests. The discounts applied to larger quantities may not be worth the cash you've tied up while the product sits on the shelf. "People don't go bankrupt because they don't make any money," Moller says. "They go bankrupt because they run out of cash."

Reduce "days of supply"— the number of units in an order multiplied by the number of days per week your store is open, divided by weekly movement of that SKU. If you ordered 12 units, your store is open seven days a week and you average one sale a week on that item (12 x 7 divided by 1), you have 84 days of supply— almost three months worth of inventory. Running this equation allows you to weed out slow sellers or at least cut back on the amount you order.

Reduce duplication. Stock fewer brands of products with the same profiles, such as 400 IU vitamin C tablets. "Double-face or multiple-face your best-selling [brands]," Moller says. "The shelf instantly looks less cluttered." But, he adds, "Variety will [appeal] to more people," so keep like items that offer variation in flavors, ingredients, packaging, size, etc., as long as they're strong sellers.

Keep current on health and consumer news, or at least listen to what your customers are saying. If you and your staff pay attention to what customers are asking (and pass those questions along to managers and buyers), you'll better manage inventory to meet consumer demand.

Remember the law of diminishing returns. Figure out how much space you need to get 80 percent of the sales in a category. For example, say it takes 12 feet of cold cereal to get 80 percent of the value of cereal with your best-selling items. And 16 feet gets you to 85 percent of the sales. You go with 16 feet, right? Wrong. "You've had to add 33 percent more space to get an extra 5 percent of sales," Moller says. "You have to right-size your departments."

Increase the share of higher-margin, lower-labor items in your total product mix, Hughes advises. And likewise, scale back on low-profit items. For instance, you have to sell dairy, but how much? The margins are low, the labor high, you're paying to refrigerate it and you have only a short window in which to sell it. Vitamins, on the other hand, last a long time and carry higher margins. The right mix of products has to serve your shoppers and deliver profits to the store.

As for slow items that a few loyal shoppers count on, Hughes suggests moving to a special-order format. Hang signs that tell customers about special-order options. Then verse yourself on distributors' guidelines for returning special-order items. Move product, no matter the cost. You bought a 10-case stack and it's not moving? Mark it down, print coupons, do whatever it takes to get rid of it, Hughes says.

Location, location, location Let's assume you have the right mix and volume of inventory. Finding the best place for any given product is key for getting it noticed and sold.

Keep things moving, Hughes says. Don't wait for your next major reset to move a product that's not selling. She and her staff relocate products every day to keep the store fresh and get slower sellers in front of different customers.

Oftentimes, that new spot is an end cap, which she changes twice a month, themed by season, an upcoming holiday or perhaps by a product that's newly popular, like resveratrol. The antioxidant was a "sleeper product," Hughes says, until TV reporter Barbara Walters presented research this spring that suggests supplements of resveratrol, which naturally occurs in wine, blueberries and peanuts, could have a strong anti-aging effect.

Merchandise cleanly. Reduce clutter by increasing facings on top sellers. Give all signage a consistent look. Update and replace the little things that make shopping a better experience for customers. For instance, Landau recently replaced Deep Roots' shopping carts and hand baskets with new ones, an inexpensive move that goes a long way. After all, the shopper is with that basket her entire visit.

Go outside the store "Reach out to the community and pull it right back into your store," Hughes says. Doing so requires both long-range plans and snap decisions, but it will help you build profitability.

If you're asked to donate a gift basket, do it. A community event needs a guest speaker on nutrition? Offer up a member of your staff. "Never turn down your community," Hughes says. At one event, the Whole Wheatery handed out 500 reusable shopping bags with the store's name printed on them, and a coupon inside. The store's cost: $400, a small price for getting its name in front of 500 people and giving them a reason to visit the store.

"Have a leture, do cosmetic demos," Hughes says. "Think like a big store but act like a small store. I can do anything they can do and probably better because I can make a change on a dime."

Deep Roots Market holds a tasting fair in its parking lot each spring, and participates in health fairs and other events where staff can educate potential customers about healthier foods or sustainable farming practices.

In the end, Hughes says, only you can determine if these changes are sufficient. "If you need more floor space, go out and get it. You're only as stuck as you want to be," she says. "We've been in that spot. There are ways to do it."